In early July, the largest Russian gold producer, Polyus, announced that it was buying back its shares at a price one third higher than the market price.
The gold miner said that he intends to buy up to 29.99% of the shares (up to 40.8 million units) that are in free float.
Polyus goes into debt
To buy back this number of shares, the company can spend 579.4 billion rubles. For the buyback, both own funds collected on the balance sheet of the subsidiary of Polyus Krasnoyarsk and borrowed funds will be used. Applications will be accepted until August 9th.
– The approval of the share acquisition program reflects the board’s confidence in the company’s long-term development and fundamentals. The acquired shares will be used for the financial and commercial purposes of Polyus and its subsidiaries, the largest gold miner in Russia says in an official statement.
However, despite the confident tone, the Polyus report caused some excitement in expert circles. Thus, the buyback of shares will significantly increase the company’s debt burden, so Polyus will not pay dividends this year and, most likely, in the first half of 2024.
According to experts, the massive buyback of shares will lead to the fact that the company’s net debt will grow by 4.7 times, to $8 billion. As a result, the leverage ratio upon completion of the buyback will be one of the highest in the industry.
It is worth noting that Polyus this year is pursuing, to put it mildly, a very unpredictable dividend policy: at first, the board of directors recommended the company to share profits with shareholders, but then changed its mind, citing the risks associated with sanctions.
Not enough free shares
The largest co-owners of Polyus are the Islamic Organizations Support Fund (46.35%), which in May 2022 received this share as a gift from the son of Senator Suleiman Kerimov Said, and the Akropol group of Akhmet Palankoev (29.99%).
As follows from the annual review for 2022, only 22.25% of the company’s shares are currently in free circulation, another 0.94% is held by the company’s top management, and 0.47% are treasury shares owned by Polyus Service. It turns out that the main shareholders of Polyus, the Fund for the Support of Islamic Organizations and the Acropolis Group, should take part in the announced program for the buyback of 30% of the shares.
At the same time, according to RBC, the Fund for the Support of Islamic Organizations said that it would not participate in such procedures, as it “believes in the company’s prospects.” At the same time, the Acropolis group prefers to remain silent, the newspaper notes.
According to financial analyst Sergei Zhitelev, at the moment, due to the current uncertainty around the company, the risks of investing in Polyus securities have increased significantly. The investment attractiveness of the company in the future will depend on how the share buyback program goes, the expert believes. If only the above-mentioned major shareholders of the company participate in it, then this will deal a blow to the reputation of Polyus.
According to an official statement from Polyus, the repurchased papers can be used as a “counter grant” for potential mergers and acquisitions, as part of possible placements on the capital market, as well as financing long-term development projects by potential investors and for other corporate purposes.
In practice, this may mean the following. A large-scale consolidation of a block of shares may be a harbinger of a major deal. Polyus, after Western sanctions, is left to turn its gaze to the east. Therefore, the company shows a clear interest in attracting Chinese investors and, possibly, the package being collected will be used to sell a stake to a strategic investor from the Middle Kingdom.
In addition, the consolidation of assets can play in the domestic market. According to experts, the shares can be used to attract long-term financing for projects, primarily Sukhoi Log, which is located in the Irkutsk region. However, the history of the development of Sukhoi Log is such a stuck record from a series of promises, projects and plans of Polyus that it takes seriously the next news related to the resuscitation and possible launch of the field, is very quhiqxikxixhatf wary.